Philanthropy Interactive

Recent Trends and Projections in Wealth and Philanthropy

© Paul G. Schervish and John J. Havens
    Social Welfare Research Institute
    Boston College
    November 1, 2000

A. Current Patterns of Wealth and Philanthropy

For more than a decade we have been studying the role of financial resources (income and wealth) in generating charitable giving by individuals and their families. Although our research has raised more questions than it has resolved, we are modestly confident about several findings. First, excluding the very highest levels, families at every level of income and wealth are about equally generous. There are some who give little or nothing, and some who give amply. But as a group, the 95% of families with incomes under $125,000 all tend to contribute about the same proportion of their income to charitable causes, roughly 1.5% to 2%. On average the highest income families with income in excess of $1 million contribute 5% of their incomes to charitable causes and, as less than 1% of the population, contribute approximately 20% of all charitable dollars (Havens and Schervish, forthcoming 2001).

Second, there is now evidence from a variety of surveys that average annual family giving may be at least $1,100 as opposed to previous estimates of around $700 (see Schervish and Havens 1998a).

Our third finding is, that at every income level, as Auten and Rudney first reported (1990), there is a small proportion of families that makes relatively large contributions to charitable causes, while the majority of families makes either more modest contributions or none at all. We discuss our confirmation of this finding at some length in a recent publication (Schervish and Havens 1998b) including the fact that as income rises, high giving is defined at higher levels. Our findings confirm the fact that in any given year relatively few families make extraordinarily high (multi-million dollar) charitable contributions and, while not demonstrating it, the findings are congruent with the assumption that these are probably different families from year to year.

Fourth, the small number of families at the highest end of the distributions of wealth or income currently contribute a dramatically high proportion of total annual or inter-vivos charitable giving. The 4.9% of families with net worth of $1 million or more made 42% of the total contributions to charitable organizations in 1997.[1] Fourteen percent of contributions came from the 0.2% of families with at least $1 million in wealth and $1 million in income; such families contribute an average of $69,000 annually. The remaining 28% of all personal contributions came from the 4.7% of families with wealth of at least $1 million but incomes below $1 million. In regard to income, the proportion of charitable dollars coming from the highest income families is also marked. We may summarize this highly skewed distribution of charitable giving by ratios of the proportions based on the SWRI composite estimate of giving[2]. These proportions show that 25% of families contribute 68% of all charitable dollars, which can be indicated by the 25/68 ratio. Even more starkly, the proportions show that 0.22% of families with incomes of $1 million or more contribute 13% of all charitable dollars, which can be indicated by the 0.22/13 ratio. A general way to summarize these relationships is as a set of ratios or rules of thumb, the 1/22, 5/40, and 10/49 in addition to the 25/68 and0.22/13 already mentioned.[3]

Fifth, although there is a negative correlation between wealth and percentage of wealth contributed in the form of inter-vivos gifts, there is a positive correlation between wealth and percentage of wealth going to charity in the form of charitable bequests made from final estates (that is, estates for which there is no surviving spouse). For final estates recorded in 1997 the average donation to charity was 14%. For estates valued under $1 million, 4% was contributed to charity. As a percentage of the value of total charitable bequests, the 0.4% of the final estates which are worth $20 million or more make 58% of all charitable bequests in terms of dollars. As the value of estates goes up, the percentage going to charity also increases. Among estates valued at less than $10 million but more than $1 million, 5.6% went to charitable bequests, while among estates valued from $10 million to under $20 million, 17% went to charitable bequests. Finally, those estates valued at $20 million or more bequeathed an average 49% of their value to charity, 30% to taxes, and 21% to heirs. In addition, as the value of estates rises, the proportion going to heirs decreases while the proportion going to taxes increases. The one exception is that estates valued at $20 million or more allocate a lower proportion to taxes than the $10 million to $19.9 million group, reflecting the 49% allocation to charity.

[1] Estimates of giving by various categories of wealth are based on The Survey of Consumer Finances sponsored by the Board of Governors of the Federal Reserve. This survey counts annual contributions of less than $500 as zero.

[2] The SWRI composite measure of giving supplements reports of annual giving of $500 or more from the 1998 Survey of Consumer Finances with reports of annual giving of less than $500 from the 1998 General Social Survey.

[3] Our current estimate of the distribution of giving by family income is less skewed at the very highest levels of income than our previous estimate. One possible explanation is variation in sampling. A more likely explanation is that the very large growth in family incomes in recent years has outpaced the family’s ability to adapt their level of giving (in a prudent manner) to their new levels of income and wealth.

Table 1 - Distributions between Charitable Causes, Taxes, and Heirs Other than Spouse

B. The Forthcoming Wealth Transfer

On the basis of a recently developed Wealth Transfer Microsimulation Model (WTMM), we estimate that the forthcoming transfer of wealth will be many times higher than the almost universally cited 55-year figure of $10 trillion (Havens and Schervish, 1999) Our low-range best estimate is that over the 55-year period from 1998 to 2052 the wealth transfer will be $41 trillion, and may well reach double or triple that amount. Depending upon the assumptions we introduce into the model (for instance, in regard to the current level of wealth, real growth in wealth, and savings rates) we estimate the wealth transfer will range from a lower level figure of $41 trillion, to a middle level figure of $73 trillion, to an upper level figure of $136 trillion. These estimates are not back-of-the-envelope projections. They derive from what to our knowledge is a first-of-its-kind microsimulation model of wealth accumulation and transfer. The new estimates update the figure published in 1990 by Robert Avery and Michael Rendall (1990)--and regularly cited ever since then--indicating that over the 55-year period from 1990 to 2044, the value of estates in the United States passing from adults with children 50 years and older would be $10.4 trillion.

Until our estimates circulate and others have a chance to review and criticize our work, we suggest that the focus be placed on the low-end estimate of $41 trillion (see Table 1) It is not because we believe our middle level estimate of $73 trillion to be unreasonably high, or our upper level estimate of $136 to be implausible. For instance, the $73 trillion estimate assumes a maximum real growth rate of 3% for the next 55 years, and assumes that the value of assets held by individuals in 1998 was $32 trillion, which is 18% lower than the $39 trillion figure recently cited in Worth magazine (September, 1999, p. 97) and lower than a recent Federal Reserve estimate of private wealth of $37.4 trillion.

Table 2 - Lower Level Estimates

Table 3 - Middle Level Estimates

Table 4 - Higher Level Estimates

Because no simulation estimates are any better than the assumptions on which they are based, and because we anticipate refining our estimates in the light of suggestions and criticism by others, we suggest that for the time being most credence be given to the $41 trillion estimate. Emphasizing the $41 trillion lower-level estimate with its 2% secular growth rate helps protect against potential charges of “irrational exuberance” arising from our not yet having modeled periodic recessions, a world economic crisis, or depression. Even the lower estimate of growth in wealth should serve to indicate the potential for substantial and even increasing levels of charitable giving, especially among those at the upper ends of wealth and income.

C. Projections of Charitable Giving

Inter- vivos charitable giving. The findings reported above about the top-heavy distribution of charitable giving, when coupled to our projections for growth in wealth and income over the next twenty years, indicate that substantial amounts of charitable contributions will be made by the affluent over that period, and explain why there is such growth in the charity procurement industry’s efforts to target wealth holders. Even a modest 3% real growth in charitable giving over the next 20 years, would mean that annual giving by these highest income and wealth families (0.22% of families) would move from approximately $17 billion in 1998 (13.6% of 92.7% of the Giving USA 1999 estimate[1] of $135 billion of 1998 individual giving [AAFRC 1999]) to approximately $30 billion by 2017 in 1998 dollars, or (assuming a 3% rate of inflation) $52 billion in 2017 dollars. This indicates that even without a substantial change in behavior toward more inter-vivos charitable giving, and without including the additional families which will enter this group, families with at least $1 million in wealth and income in 1998 dollars will contribute approximately $460 billion over the next 20 years in 1998 dollars or $800 billion in 2017 dollars. Broadening the relevant population to the 1.8% of the families with net worth of $1 million or more and annual income of $200,000 or more in 1998 dollars, the potential amount of charitable giving is even more dramatic. Again, without a change of behavior or adding families that will enter this category, this 1.8% of the population can be expected to move from contributing $39 billion in 1998 (31.4% of 92.7% of the Giving USA 1999 estimate of $135 billion of 1998 individual giving [AAFRC 1999]) to $69 billion in 2017 in 1998 dollars or (assuming a 3% rate of inflation) $121 billion in 2017 dollars. Over the next twenty years, therefore, we can expect that this 1.8% of the population will contribute approximately $1.05 trillion in 1998 dollars or $1.84 trillion in 2017 dollars. If the real growth in annual giving by the wealthy increases by more than 3%, or the share of total charitable dollars contributed by them continues to increase even at a moderate pace, then the amounts just cited will turn out to be substantially greater. For the population as a whole we estimate that if charitable giving grows over the next two decades at the same real average rate of 5.51% as it did over the past 5 years (1994-1998), inter-vivos giving in 2017 will reach an annual total approaching $374 billion in 1998 dollars ($650 billion in 2017 dollars). If charitable giving grows over the next 20 years at the slower pace it did over the previous 15 year-period (1978-1993), inter-vivos charitable giving in 2017 will increase to $191 billion in 1998 dollars ($333 in 2017 dollars) (Schervish and Havens 2000).

Recent Trends GIF

Charitable Bequests. Turning from inter-vivos giving to bequests, the projections are equally propitious. One apparent empirical anomaly, we discovered in our research (Havens and Schervish, forthcoming 2001) is the negative correlation between wealth and percentage of wealth contributed in the form of annual giving. While the percentage of income contributed increases with wealth as well as with income, the percentage of wealth contributed rises with income but not with wealth. However the area of charitable giving, which is positively related to wealth, is, as we already described, charitable bequests. This fact not withstanding, the value of charitable bequests hovers around 10% of annual inter-vivos gifts by individuals. Because of the dramatic growth of wealth predicted by our WTMM, we project we expect that in addition to annual inter-vivos giving, and without any increase over the 1995 proportion of estates going to charity (something that has in fact occurred from 1995-1997; see Tables 7 and 8 below), the projected 20-year level of bequests will be between $1.7 trillion and $2.7 trillion, while the projected 55-year level of bequests will be between $6 trillion and $25 trillion. Moreover, 75% of these amounts will come from the 3% of estates valued at $2 million or more (Havens and Schervish 1999).

[1] Giving by families who have non-negative wealth and who gave at least $500 annually in 1997 is 92.654% of total annual giving by all families in 1997. This percentage must be applied to total giving in order to derive unbiased estimates of giving by joint income and wealth categories.